SD home values not in bubble, says Cunningham

Home price rise consistent with economic gains, should continue rise

San Diego home prices, which rose 9.8% between January 2012 and January 2013, are probably not in a bubble, says economist Kelly Cunningham of the National University System Institute for Policy Research. To reach that conclusion, Cunningham compares the home price increase with jobs growth in 20 metro areas. San Diego's 9.8% gain, 9th among the cities, is in line with 2.5% jobs growth, 8th among cities. On the other hand, Phoenix home values shot up 23.2% in the year, highest among the 20 metro areas, but jobs growth has been only 2.4%, 9th best. Las Vegas prices rose 15.3%, 3rd highest, but jobs growth was 2.3%, 10th highest. By contrast, San Diego's home price increase and jobs growth have "been more or less in step. While buyers should be prudent, it seems likely that the price increases will continue and have not yet become separated from underlying conditions," says Cunningham.

The one argument I have with this study is that Phoenix home prices plunged 55% before recovering, and Las Vegas prices plummeted 62%. So both those cities were coming back from much deeper troughs than San Diego. Its home prices dropped a bit more than 40% at the nadir, and are still down 34.7% from the late 2005 peak.

Comments

I agree with you, Don. I call it the "diving board affect." The further down home prices drop, the greater the rise in the recovery. San Diego did not see the kind of drop that other areas did and consequently, we will not be seeing as much of a bounce.

Javajoe25: That is often the case. Of course, prices can take a dive and then not recover significantly, too. That occurs when the area is dying economically, or might be so overbuilt that recovery will be a long time coming. Statistics can be misleading, too. When something drops from 10 to 1, then comes back to 2, it rises 100%. Sounds impressive, but it isn't. Best, Don Bauder

The point is area housing prices are not yet in "bubble" territory. Prices in San Diego, as well as the rest of coastal California markets, are sustained by highly restricted building regulations. Prices are rising as investors make the bet they can flip the homes or rent them at substantial rates. Therefore it is not difficult to see another bubble forming.

kellysanmiguel: I agree on both points. Home prices in coastal California are not yet in bubble territory, but could get there. It's not just restrictive building regulations driving prices up; coastal California is a desirable place to live, despite all the whining about high taxes, high cost of living, moderate wages, etc. People will pay to move from Youngstown or Detroit to coastal California. Best, Don Bauder

Murphyjunk: It is true that after politicians have been in office awhile, they can no longer distinguish between truth and fiction. Their response to a question is invariably whatever gets the most votes, whether true or false. Washington DC is a veritable sea of mendacity. Ditto Sacramento. Best, Don Bauder

Prices may not be in the stratosphere as before, but I just saw a 1940 two-bedroom house near Windansea Beach in La Jolla with a shredding wood shake roof listed at $2,300,000. And the modest American car parked in the driveway was plastered with bumperstickers for Democrats and progressive initiatives. It's being marketed as a tear-down. The villa-fication continues.

monaghan: I am not surprised at the price of the La Jolla tear-down. La Jolla prices have always amazed me. Relatively cheap homes built after World War II command high prices today, although it is true those homes have been maintained very well and usually improved. If you want to see really startling home prices, go to Silicon Valley. San Jose prices are the highest among major metro areas -- by far -- and the homes that fetch more than $1 million will amaze you. Best, Don Bauder